Here’s a practical, everything-you-need-to-know overview—written for the Philippine setting—on refunds when a condominium unit turns out to be mortgaged to a third party (usually a bank).

The core problem, in plain terms

You bought (or reserved) a condo unit. Later you discover the unit—or even the whole project—was previously mortgaged by the developer to a bank. You worry about title, foreclosure risk, and whether you can get your money back. Philippine law gives you several layered protections and refund routes, depending on the facts.

Key laws and why they matter

Civil Code (Arts. 1191, 1167–1169, 1319, 1338–1344, 1458–1475)
- A condo sale is a reciprocal contract: you pay; the developer delivers title “clean and free” (unless expressly agreed otherwise).
- If the developer can’t deliver a clean title (e.g., because it is encumbered), you can seek rescission (resolution) under Art. 1191, with refund of payments plus damages/interest.
- Fraud or misrepresentation (e.g., concealing a mortgage) strengthens your right to rescind and claim damages.
P.D. 957 (Subdivision and Condominium Buyers’ Protective Decree)
- The “buyers’ shield.” Developers must be transparent; regulators can order rescission and refund for violations.
- Mortgages: Developers commonly finance projects by mortgaging land/buildings to banks. This is not illegal per se, but buyers must be protected: upon your full payment, the developer must deliver your CCT (Condominium Certificate of Title) free from liens/encumbrances or secure a release from the mortgagee.
- Violations can lead to administrative sanctions and buyer remedies (including refund).
R.A. 4726 (Condominium Act) and P.D. 1529 (Property Registration Decree)
- Define condo ownership and registration rules. The CCT must be delivered to you—clean—after full compliance. A prior annotated mortgage generally follows the land/unit until released or cancelled.
R.A. 6552 (Maceda Law)
- Applies when the buyer defaults on installment purchases of real estate. It guarantees a cash surrender value (CSV)/refund scale (e.g., 50% after at least 2 years of installments, plus 5% per additional year after the 5th, capped at 90%).
- Important: Maceda protects defaulting buyers; it is not the main remedy when the developer breaches (e.g., can’t deliver clean title). For developer breach, you usually get full refund (not just CSV) via Art. 1191 / P.D. 957.
Legal interest
- Monetary awards/refunds earn 6% per annum legal interest (applied by courts/tribunals). Generally from the date of demand or filing until full satisfaction.

Typical scenarios & your refund rights

A) Mortgage existed but was disclosed, and you still proceeded

If the contract expressly says the unit is subject to a mortgage and explains how/when it will be released (e.g., upon your full payment, the bank will issue a partial release), the developer must actually secure the release and deliver your CCT clean.
If, despite disclosure, the developer fails to clear the mortgage within the promised timeframe, you can:
- Demand compliance (specific performance), or
- Rescind and claim full refund + interest + damages (Art. 1191).

B) Mortgage existed but was not disclosed (or was downplayed/misrepresented)

Non-disclosure is serious. It is a material fact; buyers assume they’ll get a clean title.
You may rescind for substantial breach and/or fraud and seek full refund of all payments (including down payment, amortizations, and officially receipted fees), plus 6% interest, and damages (e.g., moral/exemplary, attorney’s fees) depending on bad faith.
Administrative route under P.D. 957 (via HSAC/DHSUD) can also order refund and impose sanctions.

C) The bank forecloses the project mortgage before your title is delivered

If your unit (or the mother title) is foreclosed before you receive a clean CCT, your ownership is jeopardized.
You can pursue rescission and full refund from the developer. If the mortgagee-bank took the unit with knowledge of your prior rights (e.g., documented buyer lists, annotation, possession), you may also explore claims against the bank; but commonly the developer is primarily liable to return your money.

D) You have fully paid the unit price, but the CCT still carries the mortgage

After full payment, you are entitled to a clean CCT within a reasonable time (or the period set in the contract).
If the mortgage remains, you may withhold acceptance and demand release. Continued failure supports rescission + full refund + interest, or specific performance with damages if you’d rather keep the unit.

E) You’re still paying installments, and you discover the mortgage

You may suspend further payments if the developer is in substantial breach (e.g., refusal/inability to show a clear path to release). Give a written demand and reasonable compliance period.
If the breach persists, you may rescind and seek full refund (not Maceda CSV, because you’re not the defaulting party). If you choose to cancel voluntarily without fault of the developer, Maceda CSV applies.

Who decides and where to file

HSAC (Human Settlements Adjudication Commission; formerly HLURB) has special jurisdiction over disputes arising from condo sales under P.D. 957. You can file at the appropriate Regional Adjudication Branch.
Civil courts (Regional Trial Courts) also have jurisdiction for civil actions (rescission, damages).
Many buyers start with HSAC for specialized, faster administrative relief; others go straight to RTC depending on strategy (e.g., claiming bigger damages, complex bank issues).

What a typical refund award can include

100% of all payments you actually made to the developer (down payments, amortizations, accepted fees).
6% per annum legal interest, often from date of demand (or filing) until fully paid.
Damages (moral, exemplary) and attorney’s fees, when bad faith or deception is proven.
Ancillary relief, e.g., release of documents, cancellation of annotations, and administrative fines against the developer.

Contrast with Maceda Law CSV (50% to 90%): that applies when you cancel due to your own default, not when the developer breaches. In a developer-breach case, you push for full refund.

Practical steps if you discover a mortgage

Get the facts on paper.
- Secure a certified true copy (CTC) of the mother title or CCT from the Registry of Deeds to confirm any mortgage annotations.
- Gather your Contract to Sell/Deed of Absolute Sale, official receipts, payment schedules, emails, brochures, and chat messages (misrepresentations often appear in marketing materials).
Review your contract.
- Look for clauses on encumbrances, timelines for title/CCT delivery, and mortgage releases.
- Note any grace periods or conditions precedent.
Write a formal demand.
- Demand (a) immediate proof of partial release for your unit or a clear, dated plan to secure it; or (b) rescission with full refund + 6% interest if they fail within 15–30 days.
- Send by registered mail with return card or personal service with acknowledgment.
Choose your forum.
- HSAC complaint: cite P.D. 957 violations and ask for rescission, refund, interest, and damages.
- RTC action: if you expect complex issues or higher damages, file a civil case under Art. 1191 (resolution for substantial breach).
Consider lis pendens/annotation.
- If you sue in court, your lawyer may annotate lis pendens to alert third parties and protect your claim.
Keep paying?
- If the breach is substantial and ongoing, consult counsel about suspending payments (with a demand letter explaining grounds). Don’t silently default; document why you halted payment.

How refunds are computed (illustrative)

Developer breach → Full refund:
- Sum of all actual payments (DP + amortizations + receipted fees)
- + 6% legal interest from date of demand (or filing) until full payment
- + possible damages/fees (court/HSAC’s discretion based on proof of bad faith, stress, etc.)
Buyer default → Maceda CSV:
- If you cancel due to your own default on installments: at least 2 years paid → 50% refund; add 5% per year after the 5th year up to 90% maximum.
- Usually no damages; interest is rare unless the award specifies it.

Special nuances that often decide cases

Timing of the mortgage vs. your sale:
- A prior-registered mortgage generally takes precedence over later sales unless protected by PD 957 orders/arrangements. For buyers, this underscores the need for release/partial release upon payment.
Developer’s good faith (or lack of it):
- Concealment or false assurances about “already released” units typically leads to rescission + full refund + damages.
Bank’s knowledge of buyers:
- If the mortgagee-bank knew (or should have known) of sold units and still pushed foreclosure without carving out buyer-paid units, further remedies may be explored—but your immediate refund claim typically targets the developer.
Delivery deadlines and “reasonable time”:
- Contracts often set delivery/CCT timelines. Even without a fixed date, the law implies reasonable time. Long, unexplained delays in releasing mortgages are grounds for rescission.
Association dues / turnover issues:
- Turnover can proceed even while title work is pending, but title must ultimately be clean. Long delays tied to an unreleased mortgage are actionable.

Evidence checklist (make your lawyer’s life easier)

Contract to Sell / Deed of Absolute Sale
Proof of payments (ORs, bank statements)
Brochures / emails / texts stating the unit was “free from liens” or “ready for title”
CTC of mother title/CCT showing mortgage annotation
Developer letters acknowledging the mortgage or promising release dates
Your demand letter and proof of service
Any notice of foreclosure (if applicable)

FAQs

Q: Can the developer mortgage the project at all? Yes, developers commonly mortgage to finance construction. But they must protect buyers, disclose material encumbrances, and cause releases so your unit is ultimately titled clean.

Q: I only paid a reservation fee and a couple of monthly amortizations. Can I still get a full refund? If you’re rescinding due to the developer’s breach (e.g., concealed mortgage, failure to secure release), you can ask for full refund of everything you paid, with 6% interest, plus damages where warranted.

Q: What if I want to keep the unit, not cancel? You can demand specific performance: compel the developer to secure the bank’s release and deliver a clean CCT, with damages for delay.

Q: How long do I have to sue? Actions on written contracts (including Art. 1191 rescission) commonly follow a 10-year prescriptive period counted from breach. Some fraud-based actions have shorter windows. To be safe, act early and consult counsel; administrative complaints also have timeliness considerations.

Q: From when is the 6% interest computed? Courts/tribunals typically compute from the date of your extrajudicial demand (or filing), until fully paid.

Sample demand language you can adapt

We write regarding Unit ___ at ________ Condominium. We recently obtained a certified copy of Title No. ______ showing an existing mortgage in favor of ______ Bank annotated on the mother title/CCT. This encumbrance was not disclosed to us and/or has not been released within the contractually promised period.

Pursuant to Article 1191 of the Civil Code and P.D. 957, please (a) secure and deliver a release of mortgage for our unit and deliver a clean CCT within 30 days, or (b) confirm rescission of our contract and remit a full refund of all payments made to date, with 6% per annum legal interest from this demand, plus damages and attorney’s fees.

Absent compliance, we shall pursue appropriate relief before HSAC and/or the regular courts.

Bottom line

A mortgaged condo unit isn’t automatically illegal—but you are entitled to a clean title upon (or within a reasonable time after) full payment.
Non-disclosure or failure to clear the mortgage is a substantial breach. Your primary remedies are rescission with full refund + 6% interest + damages, or specific performance to force a clean transfer.
Maceda Law refunds mainly apply when you cancel for your own default; for developer breach, push for the full refund route.
Document everything, send a solid demand letter, and be ready to file with HSAC or the RTC.

If you want, tell me your exact timeline (payments made, contract dates, any letters you’ve received) and I’ll draft a tailored demand and a filing checklist you can use right away.